Um Ahmad, as she was known to the girls, had it all planned out. From Baghdad to the border and on to Damascus and a new life, Mona and her three Iraqi friends didn't need to worry about a thing.

The job in the textiles factory outside the Syrian capital would pay $300 (£160) a month, travel for the long journey was already arranged, a place for the girls to stay was ready and waiting and - best of all - Um Ahmad would pay Mona's father one month's salary in advance.

For the 26-year-old eldest daughter of eight children whose parents faced a daily despair of car bombs and poverty in their Baghdad slum, the offer sounded too good to be true.

It was.

Within a week of arriving in Damascus, Mona - whose name has been changed to protect her identity - had been plied with alcohol by Um Ahmad, required to dance for "friends of the factory owner" and had lost her virginity.

Unable to return to her family due to the perceived shame she had brought upon them, Mona began her new life in Syria as a prostitute working for Um Ahmad, dancing in bars outside Damascus and having sex with clients.

As pressure mounts on President George Bush to announce a significant change of direction to the disastrous military occupation of Iraq, the stories of Mona and others like her are a sobering reminder of the consequences of the other Iraq that war has created: a place away from bombs and beheadings, but where the daily struggle for existence is still desperate, and where young lives continue to be torn apart.

Mona had become another victim of the growing sex trade among an Iraqi refugee community in Syria that local NGOs now estimate at 800,000 people, and to whose plight aid agencies say the international community continues to turn a blind eye.

Laurens Jolles, acting representative for the United Nations High Commissioner for Refugees (UNHCR) in Damascus, told the Guardian that international donor funds for the agency's Iraq programme have been drastically reduced for 2007, roughly halving an office budget he said was already "totally insufficient to provide tangible results".

UNHCR Damascus had requested an overall 2006 budget of $1.3m but got only $700,000, said Mr Jolles - amounting to less than $1 per Iraqi refugee per year, not including the agency's operating costs and its expenditure on non-Iraqi refugees.

"When Iraqis first came here they brought resources and many were not in need of assistance. Two years on, that situation has changed and many refugees are no longer able to look after themselves," said Mr Jolles.

"The situation in Iraq is getting worse and there is no prospect of return. Without providing sufficient resources to help host governments contain the refugee population there will be a secondary displacement of refugees to Europe. The time to do something is now."

A report published recently by the UNHCR and Unicef, the UN children's fund, concluded that an estimated 450,000 Iraqis in Syria "are facing aggravated difficulties" related to their "ambiguous legal status and unsustainable income".

Privately, officials acknowledge the real number is far higher. The majority of Iraqis live in the suburbs of Damascus in deteriorating conditions without work permits, suffering unemployment.

Before April 2003 the number of Iraqis in Syria was estimated at 100,000. Last week UNHCR chief spokesman Ron Redmond said that each month some 40,000 Iraqis are now arriving in Syria, a country of only 19 million people.

The UNHCR report found that prostitution among young Iraqi women in Syria, some just 12 years old, "may become a more widespread problem since the economic situation of Iraqi families is increasingly deteriorating".

"Organised networks dealing with the sex trade were reported," it said, finding evidence that "girls and women were trafficked by organised networks or family members".

Overall, the UNHCR estimates more than 1.5 million Iraqis are internally displaced in Iraq, including some 800,000 who fled their homes prior to 2003, as well as 754,000 who have fled since. A further 1.6 million Iraqis are refugees residing in neighbouring countries, with the majority in Syria and Jordan.

Despite ever increasing numbers of Iraqis fleeing the deadly violence in their homeland, donations to the UNHCR Iraq programme from the US, EU nations, Japan and Australia have been in freefall since the start of the US-led war.

From a high of $150m in 2003, the UNHCR budget for its Iraq programme fell to $29m for 2006, with just a quarter of that budget allocated to neighbouring countries.

Andrew Harper, coordinator for the Iraq unit at UNHCR in Geneva, said the drastic shortfalls have led to the suspension of priority projects such as work to identify and aid the most vulnerable Iraqi refugees, including single mothers, the sick and the elderly.

"Iraq has seen the largest and most recent displacement of any UNHCR project in the world, yet even as more Iraqis are displaced and as their needs increase the funds to help them are decreasing," said Mr Harper. "This growing humanitarian crisis has simply gone under the radar screen of most donors."

The UNHCR is now calling on donor countries to extend their funding of the Iraq programme to a budget of $25m for 2007. Even if that figure is achieved it will be too little too late to help rebuild the lives of many Iraqis living in Syria.

Mona's life took an unexpected turn when Syrian police broke up Um Ahmad's prostitution racket. Free to work for herself, she found a job in a clothes shop, married her Syrian boyfriend and is now a proud mother. Back in Baghdad her family still have no idea where the money she sent them came from.

But for another 17-year-old from the Shia holy city of Najaf in southern Iraq, an evening's work in an adult bar outside Damascus still brings her shame. But it is the only income her family has.

"No one in my family can shout at me, even though they know what I do, because I am the only one working," said the girl, who has changed her name to Ayman since arriving in Syria in June 2003 and who earns $60 a night dancing and sleeping with wealthy Syrians and Arabs from the Gulf.

"I drink a lot of wine before I have sex with the men. Sometimes I hate myself for doing this job, especially when men ask me to do unusual things to make them happy," said Ayman. "I want to be married to a good husband and to have a family of my own, but the war forced me to come to Syria. I keep thinking I should just run away to start a new life in Europe, or maybe even America."